CHICAGO — Indianapolis is set to come to market in the next few weeks with $58 million of water bonds even as it enters the final stages of selling its system to a nonprofit private utility.

The city is waiting for an Indiana regulatory body to green-light a high-profile $1.9 billion plan to sell Indianapolis’ water and sewer systems to Citizens Energy Group, a nonprofit trust that currently runs the city’s gas utility.

The terms of the deal, expected to be closed by late summer if the state approves it, require Citizens to pay $425 million and assume nearly $1.5 billion of water and sewer bonds to acquire the assets.

“We recognize it’s a little unique to be going to market for a bond issue secured by revenues from an asset we’re in the process of selling,” said Deron Kintner, executive director of the Indianapolis Local Public Improvement Bond Bank, which will issue the bonds. “But we don’t think it will be a problem when we get to market.”

The Indianapolis Department of Water, which serves nearly one million customers in and around the triple-A rated city, has $912 million of outstanding debt.

The bond bank expects to enter the market with the $58 million borrowing in late April or early May, Kintner said. The timing is linked to a recent rate increase, which required that the water system issue bonds whose debt service payments are bundled into the rate increase by June. The state approved the increase in February.

The 29% rate increase should help boost the system, which has spent the last few years struggling with costly debt derivatives and declining liquidity.

Moody’s Investors Service, which downgraded the credit one notch to A2 in December, last week revised its outlook to stable from negative, noting that the rate increase should stabilize the ­system.

“With the recent permanent rate increase, we believe that system coverage ratios will be restored to provide adequate coverage levels and stability, though given the operating environment and oversight, challenges remain,” Moody’s analyst Iliana Beltran wrote in a report on the upcoming deal.

Standard & Poor’s, however, cut its rating on the water bonds to A-plus from AA-minus. Like Moody’s, Standard & Poor’s warned that the system suffers from very weak liquidity and a high debt burden.

Fitch Ratings rates the system A with a stable outlook after downgrading it one notch earlier this year.

The water system has spent much of the last few years working to jettison expensive variable-rate debt hedged by floating-to-fixed interest rate swaps. Such debt at one point made up 60% of the system’s overall debt portfolio. The system scrambled to shift the debt into fixed-rate mode and terminate all swaps after the financial crisis drove the cost of such derivatives sharply higher. It also took two years to win the recent rate increase.

“The variable-rate debt took a big chunk of reserves, then the time that the rate case required ate up more of the reserves and forced it to borrow from the city’s general fund,” Kintner said.

Morgan Stanley is the senior manager on the upcoming deal. Morgan Keegan, City Securities, and Ramirez & Co. make up the rest of the underwriting team. Crowe Horwath is financial adviser and Ice Miller LLP is bond ­counsel.

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